Ax Your Taxes - Part One: An Article in the McGallicher Money Makeover Series

I have found that there is a big financial plus to not working. Since I left work to become a stay-at-home mom, my husband and I are in a lower tax bracket! The last year that I worked, we owed the IRS $4000 in federal income taxes at tax time. The first year that I stayed home with the kids we received a $8800 tax refund! "Wow", I thought, "that must have been a fluke." I figured it was the result of a new dependent - baby number 3, who was born in December - and some changes to the tax laws. So, my husband and I decided not to change our tax withholding rate.

Well, it turned out that the following year our refund exceeded $5000! My husband has since changed his withholding from 1 exemption to 6 exemptions, and he is bringing home an extra $300 per month. We won't see that big refund next year, but it's money in our pockets either way. You can do it too, and I will tell you how.

Taxes will be the single biggest expense of your lifetime. You will spend more on taxes than on your home and a college education for your children combined. Do you remember that H&R Block commercial from a few years back that claimed the average American overpays his taxes by $610 per year? What can you do about it? You can reduce your tax liability with thorough record keeping.

I'm not talking about throwing all of your receipts into a shoebox and handing them to your accountant in April. If you wait until then, it will be too late. Stay on top of things throughout the year, and you will breeze through tax time in the spring. The important thing to remember is this: Little Things Add Up!

If you own a home, you will file Schedule A to reduce your taxable income by your home mortgage interest and property taxes. You might as well take advantage of the other deductions on that form: medical expenses, charitable contributions, and miscellaneous expenses. However, it is difficult to know if you qualify, if you don't track your expenses all year long.

Your tax preparer is merely going to fill in the blanks when you file with the information that you provide. It is up to you to know which things qualify as deductions and to keep tabs on those things. Good record keeping will not only make tax time less stressful, but will protect you in the event of an audit.

Here is what I do. I have a special Tax Notebook for tracking deductible expenses during the year. I have one page for each of the following categories: medical and dental bills, medical and dental mileage, cash donations, non-cash donations, charitable mileage, non-reimbursed work related expenses, tax preparation expenses, and investment related expenses. In each section I also keep an envelope for receipts in that category.

I will give you more specific details on which expenses to track and how I go about it in Part Two of this article.